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Federal Reserve staff told central bank officials at the end of July that they were lowering their estimate of economic growth in the second half of the year, according to the minutes of the Federal meeting. Open Market Committee published Wednesday.
Fed staff members present their own forecasts to eight meetings of the central bank’s interest rate committee each year.
At the last meeting on July 28-29, services said they expected the rate of recovery in gross domestic product and the pace of the decline in the unemployment rate to be “a little less robust than in previous forecasts ”.
Staff blamed the slowdown on the increasing spread of the coronavirus since mid-June and the slowdown in state reopening of businesses. Fed officials stressed in their policy statement released after the July meeting that the trajectory of the economy would depend significantly on how the coronavirus pandemic unfolds.
“Participants generally agreed that the prospects for further substantial improvement in the labor market would depend on a general and sustained reopening of businesses. In turn, such a reopening would largely depend on the effectiveness of health measures to limit the spread of the virus, ”said the minutes.
Staff forecasts assumed further fiscal stimulus would be passed by Congress, but these were delayed as the two political parties vie for the advantage ahead of the November presidential election.
At the July meeting, Fed officials decided to keep interest rates at zero and maintain monthly purchases of $ 120 billion of US Treasuries and mortgage-backed securities.
Fed Chairman Jerome Powell said the central bank “wasn’t even thinking about raising rates.”
During their discussions, Fed officials noted that there had been increased uncertainty over the economic outlook since their previous meeting in mid-June.
Richmond Fed Chairman Thomas Barkin in remarks after the release of the minutes said uncertainty “matters a lot to people in the economy.”
Blue-collar workers “seem frozen in place” and some business leaders say they are struggling to find workers, even with an unemployment rate above 10%, Barkin said in a conference at the National Economists Club.
“We’re in a very vulnerable place, and I don’t know what the next shoe will be to give up,” Barkin said.
According to the minutes, “several” Fed officials said further monetary easing may be needed to strengthen the economy. “Some” said that strong budget support would be needed.
Going forward, “a number” of Fed officials felt that the central bank should rewrite its forecast. Officials have spoken of pledging to keep interest rates low until one or more economic outcomes are achieved.
But the minutes show that nothing was done to reach agreement on this issue in July. No mention was made of the next central bank meeting in September. Wall Street economists thought the Fed would be ready to update its forecast in mid-September, but recent comments from Fed officials have cast doubt on that expectation.
Discussion of a new tool where the Fed could cap interest rates beyond short-term rates received mixed reviews at the July meeting, according to the minutes. Many Fed officials who spoke of controlling the yield curve said there were only “modest benefits” and serious potential “costs” to the strategy, including uncertainty over the future. way to end it once it has started.
“In light of these concerns, many participants felt that performance caps and targets were not justified in the current environment, but should remain an option that the FOMC could re-evaluate in the future if circumstances change. », Indicates the minutes.
Powell and his deputy Richard Clarida spent most of 2019 laying the groundwork for a change in the Fed’s strategy to keep the economy on a level playing field. A central concern is that inflation has almost never reached the Fed’s 2% target since the target was adopted in 2012. Fed watchers were hoping some details of the Fed’s new plans would reach. inflation target, but the minutes only indicated that officials had decided to revise the strategy was a good idea.
Stocks lost their previous gains after the minutes were released Tuesday night with the Dow Jones Industrial Average DJIA,
trading close to unchanged.
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